06 BFC Armenia Agriculture Finance Bulletin

11/2015

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6 A rm e n i a Agriculture Finance Bulletin Russia - Turkey Crisis and EEU Accession to Bolster Exports Companies in Border Towns Berd and Chambarak Receive Tax Exemptions Deputy Ambassador Visits US Funded Agriculture Ventures Lamb and Mutton Exports Increase to 400 tons

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Agriculture Finance Bulletin Edition #6, November 2015

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8) 9) 10)

Russia - Turkey Crisis and EEU Accession to Bolster Exports........................................................... 2 Yerevan to Host Wine Tasting Fair .................................................................................................. 2 Agritourism Certification Program Launched .................................................................................. 2 Fruit and Vegetable Exports Increase 68% to 70,200 tons.............................................................. 2 Companies in Border Towns Berd and Chambarak Receive Tax Exemptions ................................. 3 Agricultural Output Grows by 11.6% Totaling AMD 860 Billion ...................................................... 3 Companies Meeting EEU Standards may Resume Exports to Russia .............................................. 3 Armenia Joins International Organization of Vine and Wine .......................................................... 4 Slaughterhouses and Small Processing Facilities to be Built Nationwide ....................................... 4 Consultation Center and Preferential Credit Provided for Greenhouse Construction ................... 4

Foreign Aid ................................................................................................................. 5 11) Deputy Ambassador Visits US Funded Agriculture Ventures .......................................................... 5

Private Sector.............................................................................................................. 5 12) 13) 14) 15) 16) 17) 18) 19) 20)

Processors Receive Tax Break on Imported Raw Materials ............................................................ 5 First Commercial Aloe Vera Greenhouse Developed ...................................................................... 6 Estimated AMD 300 Million Cost for Dairy and Mineral Water Start-ups ...................................... 6 Grape Growers to be Paid by End of Year – Loan Payments Deferred ........................................... 7 Spayka LLC to Export 32,000 tons of Agricultural Products ............................................................ 7 Unifish Goes Bankrupt – Fish Farmers Operating at 1/3 Capacity .................................................. 7 Record Grape Harvest Causing Problems ........................................................................................ 8 Lamb and Mutton Exports Increase to 400 tons ............................................................................. 8 Armenian Company to Invest AMD 1.64 Billion in Dutch Rose Production .................................... 9

Note: The Agriculture Finance Bulletin presents a monthly roundup of headlines and news stories related to investments and financing flows to Armenia’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss-based development finance consulting company with a long history of working in Eastern Europe, Central, South and South East Asia and North Africa. Currently, BFC is implementing the “Financing the Agriculture Sector in Armenia” project for KfW.

BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

Phone: +41 44 784 22 22 Fax: +41 44 784 23 23

info@bfconsulting.com www.bfconsulting.com

BFC. Agriculture Finance Bulletin.

State Initiatives 1)

Russia - Turkey Crisis and EEU Accession to Bolster Exports

November 27th, 2015, http://hetq.am/eng/news/63964/armenian-minister-basturma-and-sujukh-exports-to-russia-nowpermitted.html http://armenpress.am/eng/news/827271/armenia-approved-eaeu-standards-on-creating-favorable-conditions-for-export-ofmeat.html

Recent Russian restrictions on Turkish products imposed in retaliation for the downing of a Russian military aircraft provides Armenian producers with an opportunity to increase exports, according to Minister of Agriculture Sergo Karapetyan. While joining the Eurasian Economic Union (EEU) has greatly facilitated export to member countries, meat products still lagged, said the Minister. Since basturma and sujukh – two local meat specialties – may now be exported to the EEU, this may help increase the meat industry’s prospects, added the Minister. The government is looking into ways of supporting basturma and sujukh exports, said Deputy Minister of Economy Emil Tarasyan.

According to domestic producers, Armenian meat products are of high quality and competitive; if managed correctly, demand in Russia should soar.

2)

Yerevan to Host Wine Tasting Fair

November 26th, 2015, http://www.panorama.am/en/news/2015/11/26/yerevan-wine-fair/1487071

The Ministry of Agriculture and Yerevan Municipality will hold a wine tasting fair, intended to raise consumer awareness, and promote wine culture and tourism in Armenia. Twenty companies will participate.

3)

Agritourism Certification Program Launched

November 26th, 2015, http://armenpress.am/eng/news/827479/%E2%80%9Ccertour%E2%80%9D-program-to-promotedevelopment-of-agritourism-in-armenia.html

An agritourism certification program – called “CerTour” – has been introduced. The program intends to promote agritourism through the introduction of international quality standards. Diversifying tourism is a government priority, with agritourism of particular importance, as it provides non-agricultural employment in rural communities, said Mekhak Apresyan, head of the Ministry of Economy’s Tourism Development Policy Department.

Ecotourism Association President Zhanna Galyan said that, until recently, there were fears that the agritourism industry would not be developed, adding that, today, rural guesthouses are quite successful.

4)

Fruit and Vegetable Exports Increase 68% to 70,200 tons

November 25th, 2015, http://arka.am/en/news/economy/armenian_exports_of_fresh_fruits_and_vegetables_grows_by_68_to_70_200_tons/

From January to November 2015, fruit and vegetable exports totaled 70,200 tons, a 28,000 ton (68%) increase year-on-year, according to Deputy Minister of Agriculture Robert Makaryan. As agricultural exports traditionally spike in December, annual figures are likely to be even better, he added. At 58,900 tons, the bulk of exports (84%) went to Russia, with about 11,000 tons headed for Georgia, said the Page 2

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Deputy. Other destinations include the United Arab Emirates, Poland, Kuwait, the Czech Republic, Kazakhstan, Belarus and Iran.

Fruit exports totaled: 21,300 tons of apricot, up from 1,790 tons during the same period in 2014; 11,000 tons of grape, up from 6,200 tons; 3,045 tons of plums, up from 706 tons; 2,200 tons of cherry, up from 377 tons; and 1,270 tons of apples, up from 29 tons. Vegetable exports totaled: 10,200 tons of cabbage, up from 2,000 tons during the same period in 2014; 3,700 tons of cucumbers, up from 220 tons; 2,900 tons of radish, up from 860 tons; and 1,280 tons of tomatoes, up from 213 tons.

Agricultural output totaled AMD 522.4 billion in the first 8 months of 2015, up 13.9% year-on-year, according to the National Statistical Service.

5)

Companies in Border Towns Berd and Chambarak Receive Tax Exemptions

November 24th, 2015, http://news.am/eng/news/298103.html

Businesses located in the border towns of Berd and Chambarak will be exempted from all tax, including VAT and turnover tax. Private entrepreneurs will be exempted from income tax, though contract workers will not benefit from the exemption.

Berd and Chambarak will join a list of 31 villages benefiting from the same exemptions.

6)

Agricultural Output Grows by 11.6% Totaling AMD 860 Billion

November 20th, 2015, http://news.am/eng/news/297502.html

In the first 10 months of 2015, agricultural output grew by 11.6%, totaling AMD 860 billion. Increases were recorded every month, with the highest in June – at 38% – and the lowest in January – at 1.8%.

In comparison, industrial output totaled AMD 1.06 trillion and grew by 4.6% over the same period. The highest growth was recorded in August – at 12.4% – while output decreased by 2.3% in January and 1.2% in July.

7)

Companies Meeting EEU Standards may Resume Exports to Russia

November 18th, 2015, http://finport.am/full_news.php?id=23300&lang=3

Following measures put in place to meet the Eurasian Economic Union’s (EEU) food safety standards, compliant Armenian companies will be allowed to resume exports to Russia, announced Rosselkhoznadzor, Russia’s Federal Service for Veterinary and Phytosanitary Surveillance.

Armen Hayrapetyan, head of Armenia’s State Food Safety Service and Sergey Dankvert, head of Rosselkhoznadzor, discussed the measures. Regarding the simplification of meat product certification Dankvert suggested the Argus and Mercury systems be used across the EEU. Armenia is currently considering the proposal.

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8)

Armenia Joins International Organization of Vine and Wine

November 13th, 2015, http://arka.am/en/news/business/armenia_formally_joins_international_organization_of_vine_and_wine_/

Armenia has joined the International Organization of Vine and Wine (OIV), according Minister of Agriculture Sergo Karapetyan. Accession will allow an exchange of expertise and technological developments amongst the roughly 50 member states, according to the Minister. The membership fee is EUR 13,500 per annum. Armenia plans to host an OIV tasting of Armenian wines in Paris in 2016, added Karapetyan.

9)

Slaughterhouses and Small Processing Facilities to be Built Nationwide

November 6th, 2015, http://minagro.am/en/2015/11/the-ra-minister-of-agriculture-visited-syunik-region/

During Minister of Agriculture Sergo Karapetyan’s visit to Syunik, community members in Tolors expressed concern regarding delayed payment for grapes, market access issues, the low price of meat and dairy, and agricultural machinery degradation, which affects efficiency and quality. This year’s abundant grape harvest has caused certain problems, however, the Ministry has pushed for the settlement of debts, said Karapetyan. The low price of a number of products, including wheat and milk, are due to temporary global market factors, added the Minister. Regarding market access, the Ministry plans to build slaughterhouses and small processing facilities nationwide, according to Karapetyan. In 2016, state subsidization of agroloans, seed, fertilizers and fuel will continue, assured the Minister, adding that a cooperative should be set up in Tolors, with 100 such organizations successfully operating throughout Armenia.

The villagers expressed their desire to join the Community Agricultural Resource Management and Competitiveness project, which envisages irrigation systems for 1,300 hectares of remote pastureland.

The Minister noted that the area is already being considered as a potential beneficiary.

The Minster also visited cheese producer Borisovka Ltd in Tsghuk, which works with 150 farmers from 6 communities, producing 7 types of cheese. The company plans to expand capacity threefold, according to its director. Borisovka may participate in the Agriculture Value Chain Development grant competition, said Karapetyan, with successful applicants receiving USD 50,000 in co-financing to build capacity, improve food security and expand exports.

10) Consultation Center and Preferential Credit Provided for Greenhouse Construction November 4th, 2015, http://news.am/eng/news/294455.html

To increase activity and income during the winter, Minister of Agriculture Sergo Karapetyan suggested farmers build small greenhouses, adding that a consultation center – including three demonstration greenhouses – has been set up in Darakert, Ararat. Preferential credit for the purchase of Italian and Israeli greenhouse systems will also be provided, said the Minister.

An additional 70 hectares of modern greenhouses were built in Yerevan this year, according to Karapetyan. Another 40-50 ha are planned over the coming years, enough to satisfy the country’s demand for vegetables in the winter months, added the Minister.

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Foreign Aid 11) Deputy Ambassador Visits US Funded Agriculture Ventures November 6th, 2015, http://hetq.am/eng/news/63516/thriving-goat-and-dairy-operations-showcase-benefits-of-uscommitment-to-boosting-the-armenian-agricultural-sector.html

Deputy US Ambassador to Armenia Richard Mills Jr. and Deputy Minister of Agriculture Armen Harutyunyan visited several US supported agricultural ventures in Vayots Dzor, according to the US embassy.

The pair visited the ARID Goat Breeding Center in Yeghegnadzor. Launched in 1999 with US Department of Agriculture (USDA) assistance, the center supports dairy goat farming through genetic science, technical assistance and veterinary consulting. With the support of the USDA’s Agritourism Development Project, the center will soon help farmers promote local goat’s cheeses and other products to tourists.

The visit included a meeting with dairy cooperative members at a milk collection facility in Aghnjadzor, funded through the United States Agency for International Development’s (USAID) 5-year, USD 4 million Advanced Rural Development Initiative (ARDI) program, launched in 2013.

The tour concluded with a visit to a USDA Center for Agribusiness and Rural Development (CARD) funded feta cheese production facility in Salli. CARD provides support through technical training, product development and financial assistance related to currency fluctuations.

The Deputies also met with local government and community members in Rind, Chiva, and Yalpin – whose fruit farmers will benefit from USAID funded irrigation and cold storage projects, bringing in 420 permanent jobs.

Private Sector 12) Processors Receive Tax Break on Imported Raw Materials November 23rd, 2015, http://arka.am/en/news/economy/processing_companies_in_armenia_to_pay_lower_duties_on_imported_raw_materials/

Raw materials imported for further processing and domestic consumption will benefit from a new tax break. If the duty on the finished product is lower than on the raw materials, then payment may be deferred for a year, said Minister of Economy Karen Chshmarityan.

This allows lower rates to be levied on imports from the Eurasian Economic Union, said the Minister.

Raw materials include meat and meat by-products, fish and shellfish, dairy products, eggs, poultry, honey and other animal products, as well as fruits, nuts, coffee and tea.

Processing companies in Armenia will pay lower duties on raw materials they will import from abroad for use in their production. The list of products that fall into the category of "processing for domestic consumption" was approved today by the Armenian government.

"If the raw material is imported for further processing, and the duty on the finished product is lower than on raw materials, the economic entities will be given the opportunity to defer payment of taxes for one year and pay for finished goods ," economy minister Karen Chshmarityan said.

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According to Chshmarityan, this decision creates an additional opportunity for raw materials imported to Armenia in the framework of the Eurasian Economic Union, to be levied on lower duties.

Prime minister Hovik Abrahamyan added that this is yet another step to support the domestic business.

13) First Commercial Aloe Vera Greenhouse Developed November 20th, 2015, http://www.armenianow.com/society/features/67974/armenia_aloe_greehouse_production_karen_avagyan_juice

Karen Avagyan has developed Armenia’s first Aloe Vera cultivation. The plant does not have a particular harvest time; instead, once planted, roots eventually spread through cultivated area, with the leaves ready to pluck after 3 years and a life expectancy of 100 years, according to Avagyan.

Yield is 10 tons per hectare, with a greenhouse of 800 square meters yielding 8 tons. Reaching these levels takes time, with yields at 2 tons in the 3rd year and 3 tons in the 4th, eventually working their way up to 8 tons per ha, explains Avagyan. These yields are maintained for roughly 40 years.

In 2013, Avagyan presented his cultivation plan to the Ministry of Agriculture’s Community Agricultural Resource Management and Competitiveness Project, receiving a USD 16,000 grant. Avagyan has already invested USD 20,000, with USD 9,000 spent on seedlings alone. With the first harvest coming in the spring, the leaves will be sold at USD 3 per kilogram, enjoying high demand from pharmaceuticals, cosmetics and juicers, according to Avagyan.

While seedlings are offered to local juice manufactures, they currently prefer to import highly diluted Aloe Vera juice from Germany, Korea and China, with prices ranging from AMD 17,000 to AMD 20,000 per liter, said Avagyan, adding that Armenia could produce a higher quality juice.

14) Estimated AMD 300 Million Cost for Dairy and Mineral Water Start-ups November 18th, 2015, http://arka.am/en/news/business/at_least_300_million_drams_needed_to_start_a_new_business_dairy_and_mineral_water_ companies_say/

Half of Armenian dairy and mineral water companies put minimum new enterprise set-up costs at AMD 300 million, according to a State Commission for Protection of Economic Competition (SCPEC) survey.

Investment recuperation is estimated at 10 years by 80% of dairy and 70% of mineral water companies.

Small and medium sized enterprises (SMEs) would consider further investments on loan interest rates between 3%-10%, while identifying a small domestic market, limited access to new markets and the need for major investment as obstacles for further growth.

Three players – Ashtarak-Kat, Dustr Marianna, and Tamara and Ani – hold 80% of the dairy market, while the mineral water industry also has three dominant players – Jermuk Group, PPP Mineral Water Plant and Jermuk Mayr Gortsaran – with 90% market share. The cheese market sees BG and Food, Dustr Melania and Arak-2 take a 45% market share.

According the survey, lack of financial resources, red tape and an unskilled workforce were also considered obstacles to development.

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15) Grape Growers to be Paid by End of Year – Loan Payments Deferred November 11th, 2015, http://arka.am/en/news/economy/armenian_wine_growers_to_receive_their_money_before_the_end_of_the_year/

Farmers will receive payment for grapes sold to processors by the end of the year, while loan repayments may be deferred until the money is received, announced Central Bank Chairman Arthur Javadyan.

This year’s harvest totaled 301,000 tons, up from 261,000 tons in 2014, while procurement totaled 209,000 tons, up from 184,000 tons last year, according to the Ministry of Agriculture. Grape exports totaled 8,000 tons, up from 5,200 tons in 2014.

16) Spayka LLC to Export 32,000 tons of Agricultural Products November 7th, 2015, http://news.am/eng/news/294991.html http://finport.am/full_news.php?id=23249&lang=3

Spayka LLC, an agricultural product processor and procurer and also Armenia’s largest freighter, has announced exports of agricultural products will triple to 32,000 tons by the end of 2015, according to Karen Baghdasayan, head of the company’s Project Management Division. By October, the company had exported 23,400 tons of vegetables, compared to 11,500 tons in all of 2014. So far, the company exported 7,800 tons of cabbage, 2,700 tons of radish, 2,200 tons of apricots, 1,600 tons of grapes, 1,600 tons of pears, 1,100 tons of plums, 1,000 tons of new potatoes, 800 tons of peaches, and 600 tons of apples.

With further investment in fleet enlargements, greenhouses and cooling systems, as well the launch of a USD 4 million facility capable of processing 40 million boxes per annum, similar growth is expected in 2016-2017, said Baghdasaya. An estimated 15,000-20,000 tons of fruit and vegetables will be purchased for processing. Employee numbers will increase from 300 to 400.

Products are mainly exported to the Commonwealth of Independent States (CIS). Deprecation of the Russian ruble has caused problems, decreasing the competitiveness Spayka’s products, said Baghdasaya.

As a result the company has reduced prices and diversified, expecting to conclude negotiations with major Eastern European retailers by the end of the year. However, accession to the Eurasian Economic Union (EEU) has reduced supply costs by 10%, while opening new markets, he added, noting that demand for Armenian agricultural products could expand by a factor of 3-4 should Global GAP quality standards be met.

17) Unifish Goes Bankrupt – Fish Farmers Operating at 1/3 Capacity November 7th, 2015, http://finport.am/full_news.php?id=23246&lang=3 http://hetq.am/eng/news/63631/large-fish-farm-in-armenia-goes-bankrupt-fish-farmers-union-prez-criticizes-ministry-forsector-indifference.html

Unifish, one of Armenia’s largest fish farms, has been declared insolvent, with Acba Credit Bank pursuing EUR 6.5 million and USD 5.1 million of unpaid loan installments in court. Rates were 9%-10% annually.

The Ministry of Environment recently cracked down on illegal wells used by fish farms, closing five exploited by Unifish. According to Ministry statistics, Unifish was the largest consumer of water in Ararat province.

Fish farmers are operating at 30-40% capacity, according to Artur Atoyan, Chairman of the Union of Fish Breeders. Fish food imports have dropped by 50%. The fish breeding industry is facing bankruptcy and monopolization, with potentially only 5-8 farms remaining in Armenia, said Atoyan. According to the Page 7

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National Statistical Service, however, from January-September 2015, fish output increased 26% year-onyear to AMD 19.7. Output totaled AMD 28.7 billion in 2014 – increasing 24.6% year-on-year, versus 30%31% in 2011-2013. In Q1, 2015, fish output totaled AMD 9.5 billion, a 23.1% increase year-on-year, versus a 18.6% year-on-year rise in Q1 2014, and a 36.2% rise in Q1, 2013.

Atoyan believes the figures are incorrect and do not reflect the situation on the ground, noting Armenian fish products’ low share of the domestic market, low prices and knockdowns. State institutions do not provide adequate support, even destroying small and medium enterprises (SMEs), he concluded.

18) Record Grape Harvest Causing Problems November 6th, 2015, http://arka.am/en/news/business/record_high_yield_of_grapes_in_armenia_reveals_problems_in_the_field_of_winemaking/ http://finport.am/full_news.php?id=23247&lang=3

With only 215,000 tons of this year’s bumper 305,000 ton grape harvest sold and 99% of procurement complete, the grape and wine industry is facing a number of problems, according to Avag Harutyunyan, Chairman on the Union of Armenian Winemakers.

Poor weather in late October caused farmers to panic and sell their produce at exceptionally low prices.

Processors were unable to absorb the supply; stock was purchased regardless of quality; and long queues caused further deterioration of the grapes, explained Harutyunyan. With reduced revenues, farmers will struggle next year, while wine and brandy production is expected to increase by a record 60% – with wine exports up 40-50% and brandy exports up 10-15%.

Harutyunyan recommends the creation of state-owned enterprises within the industry and government promotion of cooperatives which include processors. Farmers should diversify grape varieties, while processors lack modern equipment, industry experts and procurement schedules that would allow round-the-clock procurement, added the Chairman.

Sales to the Russian market still make up 81%-87% of exports, down from an average of 95% over the past 15 years, said Harutyunyan, adding that Armenian enterprises will be operating at a loss on the market for an estimated 3 years, before the ruble stabilizes and oil prices recover. In the first 9 months of 2015, wine production totaled 4 million liters – a 5.2% increase year-on-year, according to the National Statistics Service.

19) Lamb and Mutton Exports Increase to 400 tons November 5th, 2015, http://news.am/eng/news/294481.html

To date this year, lamb and mutton product exports totaled 400 tons, compared to 200 tons for the entirety of 2014, said Minister Agriculture Sergo Karapetyan. Armenia only recently switched from live sheep exports to lamb and mutton products, he added. In Masis, a halal slaughterhouse funded by Iranian investment came into operation this year. Its products are destined for Iran.

Interest in Armenian sheep products has increased with new buyers entering the market, said Karapetyan.

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20) Armenian Company to Invest AMD 1.64 Billion in Dutch Rose Production November 5th, 2015, http://arka.am/en/news/business/armenian_harvest_to_grow_2_5_billion_drams_worth_dutch_roses_a_year/

Kotayk based Armenian Harvest, a company specializing in tomato and cucumber cultivation, will invest AMD 1.64 billion in the production of Dutch roses, according to Minister of Economy Karen Chshmarityan. Of the total, AMD 1.34 billion will be spent on production equipment, with the remainder going towards 11 hectares of greenhouses, built with Richel Group technology. The company benefited from VAT deferment, awarded to companies importing more than AMD 300 million worth of technology intended for upgrades and expansion.

The greenhouses will create 90 jobs and produce an estimated AMD 2.5 billion worth of roses annually destined mainly for Russia, Georgia, Belarus, and Kazakhstan, according to the Minister.

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Prepared by Business & Finance Consulting (BFC) www.bfconsulting.com In this bulletin, BFC provides extracts from articles that have been published by others and as a result cannot be held responsible for such content.

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